Opinion
12011-20
02-09-2022
PIEDMONT BREEZE, LLC, GREENCONE INVESTMENTS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Albert G. Lauber, Judge.
This case involves a charitable contribution deduction claimed by Piedmont Breeze, LLC (Piedmont), for a conservation easement. The Internal Revenue Service (IRS or respondent) disallowed the deduction and determined penalties. Petitioner timely petitioned this Court for readjustment of the partnership items.
A month after replying to respondent's amended answer, petitioner moved for partial summary judgment, contending that Piedmont had "satisfied all section 170 elements" needed to sustain its charitable contribution deduction. It filed this motion before respondent had had the opportunity to pursue informal discovery or engage in discussions regarding stipulations of fact. Petitioner allegedly filed its motion at an early stage of the litigation in order to spare the Court from the "backbreaking burden in having to endure ersatz disputes on the scores of incontestable section 170 elements." Petitioner subsequently filed a motion for oral argument.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
On December 15, 2021, this case was assigned to the undersigned for trial or other disposition. Respondent at our direction responded to the motion. We find that there exist genuine disputes of material fact and that our consideration of the issues at this stage would not benefit from oral argument. We will therefore deny petitioner's motions.
Background
The following facts are derived from the pleadings, the parties' motion papers, and the exhibits and declarations attached thereto. They are stated solely for purposes of deciding petitioner's motion and not as findings of fact in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
Piedmont is a Georgia limited liability company. It is treated as a partnership for Federal income tax purposes, and petitioner Greencone Investments, LLC, is its tax matters partner. Piedmont had its principal place of business in Georgia when the petition was filed.
In November 2015 Piedmont acquired roughly 636 acres of land (Property) located in Newton County and Walton County, Georgia. The Property was a portion of a larger tract that had been purchased in December 2014 for $10 million. On December 16, 2016, Piedmont granted to the Oconee River Land Trust (Oconee or grantee) a conservation easement over the Property. The deed of easement was recorded three days later.
The deed recites the conservation purposes and generally prohibits commercial or residential development. But it reserves certain rights to Piedmont, including the rights to engage in recreational activities such as hunting, fishing, and horseback riding. In connection with these recreational activities, Piedmont reserved the right to build "hunting stands," "viewing platforms," and "picnic shelters." Piedmont also reserved the right to "install, maintain, or replace any fences," as well as "maintain and repair the existing ponds on the Property." The deed does not explicitly require Piedmont to secure Oconee's approval before exercising these particular rights. However, article 4 of the deed includes a general requirement that Piedmont notify Oconee "in writing . . . prior to the exercise of any reserved or permitted right hereunder that may adversely impact the Conservation Values."
Piedmont reserved other rights that explicitly required prior consultation with and/or approval from Oconee. Piedmont could engage in "commercial forest management" activities, but only if it secured Oconee's prior approval for a "forest management plan." Piedmont could engage in "agricultural management" activities, but only if it secured Oconee's prior approval for an "agricultural management plan." Piedmont could engage in certain "clearing or construction" activities, but only if Oconee supplied its prior approval.
Piedmont filed Form 1065, U.S. Return of Partnership Income, for its 2016 tax year. On that return it claimed a charitable contribution deduction of $5,305,000 for the donation of the conservation easement. Piedmont included with its return a Form 8283, Noncash Charitable Contributions.
The IRS selected Piedmont's return for examination. Following examination of that return the IRS issued petitioner, on July 22, 2020, a timely notice of final partnership administrative adjustment (FPAA) disallowing the charitable contribution deduction and determining penalties under sections 6662 and 6662A. The FPAA disallowed the deduction on the ground that Piedmont failed to meet "all the requirements of I.R.C. § 170."
Petitioner asserts that the IRS "improperly reversed field" during the examination and that respondent has violated Rule 33 with "stubbornly litigious" conduct. We find these allegations merit-less.
Discussion
The purpose of summary judgment is to expedite litigation and avoid costly, unnecessary, and time-consuming trials. See FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). We may grant partial summary judgment regarding an issue as to which there is no genuine dispute of material fact and a decision may be rendered as a matter of law. See Rule 121(b); Sundstrand Corp., 98 T.C. at 520. In deciding whether to grant partial summary judgment, we construe factual materials and inferences drawn from them in the light most favorable to the nonmoving party (here respondent). Sundstrand Corp., 98 T.C. at 520.
Petitioner has moved for partial summary judgment, contending that Piedmont "satisfied all section 170 elements." Petitioner seeks summary judgment on each "section 170 element," which necessarily includes whether Piedmont correctly valued the gift, see Treas. Reg. § 1.170A-1(c), and whether the conservation purpose underlying the easement was "protected in perpetuity," see § 170(h)(5)(A).
Respondent opposes petitioner's motion. He represents that he has recently had the opportunity to gather relevant documents and has determined that most of the "sub-issues" petitioner has raised are not in dispute. We are confident that the parties will be able to stipulate to the relevant facts regarding issues that are not in dispute.
After engaging in informal discovery respondent appears to agree that (1) Piedmont conveyed a valid real property interest, (2) the property interest was granted in perpetuity, (3) Oconee was a "qualified organization," (4) Piedmont obtained sufficient "baseline documentation," (5) Piedmont obtained a sufficient "contemporaneous written acknowledgement," (6) the land was not secured by a mortgage, (7) the easement deed contains no "judicial extinguishment" problem, and (8) Piedmont obtained a "qualified appraisal" prepared by a "qualified appraiser."
The chief issue that does appear to be in dispute concerns the easement's fair market value. "The correct value of a conservation easement is 'the fair market value of [it] at the time of the contribution.'" TOT Prop. Holdings, LLC v. Commissioner, 1 F.4th 1354, 1369 (11th Cir. 2021) (quoting Treas. Reg. § 1.170A-14(h)(3)(i)). It is well established that "[t]he determination of the fair market value of property is a question of fact." Estate of Newhouse v. Commissioner, 94 T.C. 193, 217 (1990). Because valuation disputes require the Court to weigh evidence at trial (usually expert testimony), see ibid., resolution is generally inappropriate at the summary judgment stage. See TOT Prop. Holdings, 1 F.4th at 1369 (stating that the "determination of fair market value is a mixed question of fact and law"). We will accordingly deny petitioner's motion insofar as it seeks summary judgment on valuation.
Respondent further contends that petitioner has not carried its burden in establishing that the conservation purpose underlying the easement was "protected in perpetuity." See § 170(h)(5)(A). The Code generally restricts a taxpayer's charitable contribution deduction for the donation of "an interest in property which consists of less than the taxpayer's entire interest in such property." § 170(f)(3)(A). But there is an exception for a "qualified conservation contribution." § 170(f)(3)(B)(iii), (h)(1). For the donation of an easement to be a "qualified conservation contribution," the conservation purpose must be "protected in perpetuity." § 170(h)(5)(A); see TOT Prop. Holdings, 1 F.4th at 1362; PBBM-Rose Hill, Ltd. v. Commissioner, 900 F.3d 193, 201 (5th Cir. 2018).
The regulations set forth detailed rules for determining whether this "protected in perpetuity" requirement is met. Of importance here are the rules governing the "[p]rotection of conservation purpose where [the] taxpayer reserves certain rights." See Treas. Reg. § 1.170A-14(g)(5). If a donor reserves rights on the land underlying an easement, the donor must provide the donee with certain documentation (e.g., surveys, maps, and aerial photographs) before effecting the donation. Id. subdiv. (i). "[T]he donor must agree to notify the donee, in writing, before exercising any reserved right . . . which may have an adverse impact on the conservation interests." Id. subdiv. (ii). And the deed of easement must authorize "the donee to enter the property at reasonable times for the purpose of inspecting the property . . . [and] to enforce the conservation restrictions by appropriate legal proceedings" if necessary. Ibid. These requirements are "designed to protect the conservation interests associated with the property . . . [that] could be adversely affected by the exercise of the reserved rights." Id. subdiv. (i).
The provisions of the deed that reserve certain rights to Piedmont--e.g., the rights to conduct "commercial forest management" and "agricultural management" operations--explicitly require advance notice to, and approval from, Oconee. Article 3 of the deed authorizes Oconee to "enter upon the Property at reasonable times" to "monitor compliance" with the deed. And if Oconee should subsequently conclude that Piedmont's action threatened a conservation purpose, article 9 authorizes Oconee to take legal action in order to restore the Property to the status quo ante.
However, Piedmont reserved a few other rights that do not explicitly require advance notice to Oconee. Piedmont reserved the rights to build "hunting stands," "viewing platforms," and "picnic shelters"; to "install, maintain, or replace any fences"; and to "maintain and repair the existing ponds on the Property." Because Piedmont could exercise these rights without notifying Oconee, respondent contends that petitioner has not established compliance with the regulations. In any event, respondent urges that it is a factual question whether exercise of these particular rights could "have an adverse impact on the conservation interests." Treas. Reg. § 1.170A-14(g)(5)(ii).
"[T]he question whether a conservation interest is 'protected in perpetuity' [i]s a question of fact." Pine Mountain Preserve, LLLP v. Commissioner, 151 T.C. 247, 280 (2018), aff'd in part, rev'd in part on other issues, 978 F.3d 1200 (11th Cir. 2020) (citing Glass v. Commissioner, 124 T.C. 258, 282-283 (2005), aff'd, 471 F.3d 698 (6th Cir. 2006)). Consideration of this question, moreover, may depend to some degree on state law rules governing contract interpretation and testimony from the contracting parties at trial. In any event, because this case (unless settled) will proceed to trial on valuation, we see little to be gained by attempting a definite disposition of the "protected in perpetuity" question now. We will accordingly deny petitioner's motion for summary judgment on this point.
It is accordingly
ORDERED that petitioner's Motion for Partial Summary Judgment, filed April 16, 2021, is denied. It is further
ORDERED that petitioner's Motion for Oral Argument, filed September 29, 2021, is denied. It is further
ORDERED that the parties shall file, on or before March 11, 2022, a status report (jointly if possible, otherwise separately) expressing their views as to the conduct of further proceedings in this case.